Working Paper: NBER ID: w17227
Authors: Panle Jia Barwick; Parag A. Pathak
Abstract: This paper studies the real estate brokerage industry in Greater Boston, an industry with low entry barriers and substantial turnover. Using a comprehensive dataset of agents and transactions from 1998-2007, we find that entry does not increase sales probabilities or reduce the time it takes for properties to sell, decreases the market share of experienced agents, and leads to a reduction in average service quality. These empirical patterns motivate an econometric model of the dynamic optimizing behavior of agents that serves as the foundation for simulating counterfactual market structures. A one-half reduction in the commission rate leads to a 73% increase in the number of houses each agent sells and benefits consumers by about $2 billion. House price appreciation in the first half of the 2000s accounts for 24% of overall entry and a 31% decline in the number of houses sold by each agent. Low cost programs that provide information about past agent performance have the potential to increase overall productivity and generate significant social savings.
Keywords: Real Estate; Brokerage; Market Structure; Commission Rates; Agent Performance
JEL Codes: L00; L15; L81; R00
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Entry of new agents (L85) | Sales probabilities (C25) |
| Entry of new agents (L85) | Time to sell properties (R31) |
| Presence of inexperienced agents (L85) | Likelihood of sales (G17) |
| Entry of new agents (L85) | Average service quality (L15) |
| Housing price appreciation (R31) | Average commission (L85) |
| Reduction in commission rates (L85) | Consumer savings (E21) |
| Reduction in commission rates by half (L85) | Number of houses sold per agent (L85) |
| Lower commission rates (L85) | Average sales likelihood (L25) |